How to get the most from Social Security

CHICAGO (Reuters) - The trustees of Social Security will release their annual report on the program’s health sometime in the next few weeks, and the news will not be good.

The 2012 briefing is expected to show further deterioration in Social Security’s financial outlook, due to the higher-than-expected 2.9 percent cost-of-living adjustment awarded this year and a decline in the taxable wage base available to the program. The report is the official gauge of the program’s health - signed by three Cabinet members, the Social Security commissioner and two independent Congressional appointees.

Social Security is not in imminent danger of running out of money, but it faces a financial crunch a bit further out - around 2035. That is when Social Security’s Trust Fund is projected to be exhausted due to the drawdown of benefits by the baby boom generation. At that point, the program would have sufficient tax revenue to pay only about 76 percent of promised benefits.

Steve Goss, chief actuary of the Social Security Administration (SSA), is one of the nation’s top experts on retirement data. Since he is like a walking encyclopedia on Social Security’s workings and features, Reuters talked with him ahead of the trustee report’s release to find out how beneficiaries can get the most out of the current Social Security program:

Q: You’ve been at the Social Security Administration nearly 39 years. We hear a lot of talk now in Washington that the aging baby boomer population is the big problem facing Social Security. Is that a surprise, or is it impossible to surprise an actuary?

A: It’s not a surprise at all. People say it’s about the growing number of older people living longer, but it’s all just about birth rates. Our birth rates dropped after 1965 when the baby boom ended, to the lowest-ever single year of births experienced in this country’s history - 1.74 births per woman, on average, in 1976. It dropped very quickly over a short period of time and stabilized at 2.

Q: So Social Security’s main long-term challenge is the change in ratio of workers to retirees?

A: Imagine that in an earlier generation each of us had three children. So when we get old and retire, we each have three kids in the work force contributing toward taking care of us - chipping in to buy us a house or pay our rent, or paying in to Social Security. But back in that 1965-to-1976 period, we shifted to having only two children. If only two kids are sharing that burden, that’s got to be either half again more they will put on the table, or one-third less that we’re going to get - it’s just straight-up arithmetic. Or we have to find a way to extend the time period over which we can work.

Q: With traditional pensions declining, Social Security is the only game in town for many people in terms of a guaranteed income source for retirement. Is there a way for people to “buy” more Social Security than they could otherwise get?

A: There’s one way to do this that is discussed extensively. Social Security uses a formula called the primary insurance amount, or PIA. If you wait to start receiving Social Security until your Full Retirement Age (FRA), you get 100 of your PIA. If you take it at 62, when you first become eligible, you get only 75 percent. But if you wait until age 70, you get 132 percent of the PIA.

From 75 percent to 132 percent at 70 - that is close to a doubling of the monthly retirement income that you can have for the rest of your life. What’s key on this is that Social Security is one of the few providers of a true inflation-indexed life annuity. So if people who do have some savings would use those assets to push back the date that they file for Social Security benefits, they can, in effect - easily and at a very good rate of return - “buy” a CPI-indexed life annuity.

Q: And you get the benefit of all the COLAs along the way.

A: Exactly. If you do wait until age 70 - or whenever you start receiving benefits, you don’t miss out on any of those COLAs that started at age 62. They add up and they are right there when you start getting your benefits.

Q: You’re 63 now, but you won’t be receiving Social Security yourself, correct?

A: Right. Federal workers first came into Social Security after the 1983 reforms. Workers who were hired after that point all are in Social Security; people like me had the option to join, but I stayed in the civil service retirement system. If I get Social Security at all, it would be from the work I did before joining Social Security. I’ll be enrolling in Medicare, but Social Security won’t be significant for me. And even though we are in an office where we make projections 75 years into the future, I don’t have any plans for retirement at all. As long as I‘m healthy and having fun doing my job, I want to stay here.

(The author is a Reuters columnist. The opinions expressed are his own.)